New I-Bond rate?

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Brian2d
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New I-Bond rate?

Post by Brian2d » Wed Apr 17, 2013 9:06 am

Hi,

I know the new CPI-U came out for March. Can we now figure out what the i-bond rate will be for the next 6 months?

Thanks.

Brian
Last edited by Brian2d on Wed Apr 17, 2013 9:18 am, edited 2 times in total.

bigspender
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Re: New I-Bond rate?

Post by bigspender » Wed Apr 17, 2013 9:09 am

1.18% starting may 1st. Still better than a one year cd. Buy your allocation before April 30 because the rate now is higher which you would collect for the next 6 months.

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Re: New I-Bond rate?

Post by crowd79 » Wed Apr 17, 2013 9:45 am

Buy before April 30th and you'll get 1.47% for a year (1.76% for April-Sept and 1.18% Oct-March). With tax deferral and state income tax exemption, they still beat CD's.

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Re: New I-Bond rate?

Post by DickBenson » Wed Apr 17, 2013 11:22 am

crowd79 wrote:Buy before April 30th and you'll get 1.47% for a year (1.76% for April-Sept and 1.18% Oct-March). With tax deferral and state income tax exemption, they still beat CD's.
To compare with a 1 year CD, you would have to take into consideration the 3 month penalty for early redemption of the I bond.

Dick

edit: Believe that would come out to be about 1.175% (0.5 x 1.76 + 0.25 x 1.18).

crowd79
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Re: New I-Bond rate?

Post by crowd79 » Wed Apr 17, 2013 12:38 pm

The 3 months penalty would be subtracted from the most recent 3 month interest rate, which would be 1/2 of 1.18%.

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Brian2d
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Re: New I-Bond rate?

Post by Brian2d » Wed Apr 17, 2013 12:54 pm

I guess my choices are
1. Invest now and earn 1.47% for the next year, 1.175% w/ withdrawal penalty
2. Invest between May and October and get 1.18% for half a year.
3. Wait until November and start at whatever the new rate is at that time. (I can still invest 10,000 in 2013 and 10,000 in 2014 if I choose this option,correct?)

Please let me know if any of this is incorrect.

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Mel Lindauer
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Re: New I-Bond rate?

Post by Mel Lindauer » Wed Apr 17, 2013 1:44 pm

Brian2d wrote:I guess my choices are
1. Invest now and earn 1.47% for the next year, 1.175% w/ withdrawal penalty
2. Invest between May and October and get 1.18% for half a year.
3. Wait until November and start at whatever the new rate is at that time. (I can still invest 10,000 in 2013 and 10,000 in 2014 if I choose this option,correct?)

Please let me know if any of this is incorrect.
Yes, they're all correct, but I don't see why anyone would wait instead of buying now and getting 1.76% for the first six months (you'd still get all the later inflation adjustments).
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Re: New I-Bond rate?

Post by bungalow10 » Wed Apr 17, 2013 2:13 pm

Question - I see a lot of references to the three-month penalty. Are most of you planning to hold your ibonds long term, or will you chase rates if you find CDs that are higher (even if just slightly)?

Just wondering. I'm buying for long-term holding (that's the plan right now anyway). I figure we can use them to supplement 529 funds when our three kiddos (five, three, and infant) get to college.
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Re: New I-Bond rate?

Post by Mel Lindauer » Wed Apr 17, 2013 3:41 pm

bungalow10 wrote:Question - I see a lot of references to the three-month penalty. Are most of you planning to hold your ibonds long term, or will you chase rates if you find CDs that are higher (even if just slightly)?

Just wondering. I'm buying for long-term holding (that's the plan right now anyway). I figure we can use them to supplement 529 funds when our three kiddos (five, three, and infant) get to college.
I think the answer to that is "It all depends". When/if something better comes along, folks will probably redeem their I Bonds and make the move to something that's more financially rewarding. In the meantime, they'll continue to hold their I Bonds until that better option comes along.

In your case, you've already found the tax-free option for your I Bonds (the qualifying educational expenses).
Best Regards - Mel | | Semper Fi

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Brian2d
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Re: New I-Bond rate?

Post by Brian2d » Wed Apr 17, 2013 3:55 pm

Mel - liquidity needs on the amount may also impact when I buy them. I may need a bit more liquidity than usual in the next few months.

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Re: New I-Bond rate?

Post by runner26 » Wed Apr 17, 2013 4:01 pm

For those of us with older bonds, new rates will be -
Base......New rate
0.0%.....1.18%
0.1%.....1.28%
0.2%.....1.38%
0.3%.....1.48%
0.7%.....1.88%
1.0%.....2.19%
1.1%.....2.29%
1.2%.....2.39%
1.3%.....2.49%
1.4%.....2.59%
1.6%.....2.79%
2.0%.....3.19%
3.0%.....4.20%
3.3%.....4.50%
3.4%.....4.60%
3.6%.....4.80%

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Re: New I-Bond rate?

Post by crowd79 » Wed Apr 17, 2013 5:26 pm

Mel Lindauer wrote:
bungalow10 wrote:Question - I see a lot of references to the three-month penalty. Are most of you planning to hold your ibonds long term, or will you chase rates if you find CDs that are higher (even if just slightly)?

Just wondering. I'm buying for long-term holding (that's the plan right now anyway). I figure we can use them to supplement 529 funds when our three kiddos (five, three, and infant) get to college.
I think the answer to that is "It all depends". When/if something better comes along, folks will probably redeem their I Bonds and make the move to something that's more financially rewarding. In the meantime, they'll continue to hold their I Bonds until that better option comes along.

In your case, you've already found the tax-free option for your I Bonds (the qualifying educational expenses).
EE Bonds=guaranteed 3.53% return (doubling) if held for 20 years, an excellent safe investment option for long-term saving, such as retirement. EE Bonds=rewarding.

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Re: New I-Bond rate?

Post by btenny » Wed Apr 17, 2013 6:19 pm

Is there any way to buy I bonds or EE bonds in an IRA? I have spent down a lot of my taxable money to where all I have left is equities with big cap gains that I do not want to sell. So all the investing money I have is in bond funds of various flavors and some cash , all in an IRA.

Also what is the fixed rate on 2ish year old I bonds?

Thanks in advance
Bill

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Re: New I-Bond rate?

Post by BrandonBogle » Wed Apr 17, 2013 6:25 pm

btenny wrote:Is there any way to buy I bonds or EE bonds in an IRA?
No, but you can think of it like a Traditional IRA if you decide to defer taxes on the earnings until you cash it out (or it matures in 30 years, whichever comes first).

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Re: New I-Bond rate?

Post by Mel Lindauer » Wed Apr 17, 2013 6:32 pm

btenny wrote:Is there any way to buy I bonds or EE bonds in an IRA? I have spent down a lot of my taxable money to where all I have left is equities with big cap gains that I do not want to sell. So all the investing money I have is in bond funds of various flavors and some cash , all in an IRA.

Also what is the fixed rate on 2ish year old I bonds?

Thanks in advance
Bill
Actually, Bill, there's no legal restriction against holding I Bonds in an IRA. However, there are practical restrictions, since your IRA custodian must purchase and hold them for your account, and, AFAIK, there are no custodians who will do so.
Best Regards - Mel | | Semper Fi

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Re: New I-Bond rate?

Post by tipswatcher » Wed Apr 24, 2013 11:01 am

Question - I see a lot of references to the three-month penalty. Are most of you planning to hold your ibonds long term, or will you chase rates if you find CDs that are higher (even if just slightly)?
I buy the limit each year. My current thinking is that I will hold these more-recent issues, with the zero base rate, until the base rate rises above zero. I really don't care if the I Bond is paying as much as a CD in one particular six-month period, unless bank CD rates skyrocketed.

The tricky thing is that if the base rate rises on I Bonds, I can only redeem $10,000 and reinvest $10,000 a year, so that limits how fast I could switch to the higher-rate I Bonds.

If bank CDs suddenly shoot up, I could cash a lot of I Bonds and buy the CDs, but then I pay taxes.

In either case, the cost of the taxes needs to be considered. What higher new interest rate will make it worth it to pay the taxes? Since I Bonds would pay the higher rate for 30 years, switching would be justified. But a bank CD? I'd need help figuring that one out.
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Re: New I-Bond rate?

Post by rmelvey » Wed Apr 24, 2013 11:07 am

Mel Lindauer wrote:
btenny wrote:Is there any way to buy I bonds or EE bonds in an IRA? I have spent down a lot of my taxable money to where all I have left is equities with big cap gains that I do not want to sell. So all the investing money I have is in bond funds of various flavors and some cash , all in an IRA.

Also what is the fixed rate on 2ish year old I bonds?

Thanks in advance
Bill
Actually, Bill, there's no legal restriction against holding I Bonds in an IRA. However, there are practical restrictions, since your IRA custodian must purchase and hold them for your account, and, AFAIK, there are no custodians who will do so.
Woah. Didn't know that! That's really interesting to hear.

I guess I-Bonds already come with some tax benefits (deferral) so I probably wouldn't include them in an IRA anyways. :happy

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Re: New I-Bond rate?

Post by Mel Lindauer » Wed Apr 24, 2013 3:53 pm

rmelvey wrote:
Mel Lindauer wrote:
btenny wrote:Is there any way to buy I bonds or EE bonds in an IRA? I have spent down a lot of my taxable money to where all I have left is equities with big cap gains that I do not want to sell. So all the investing money I have is in bond funds of various flavors and some cash , all in an IRA.

Also what is the fixed rate on 2ish year old I bonds?

Thanks in advance
Bill
Actually, Bill, there's no legal restriction against holding I Bonds in an IRA. However, there are practical restrictions, since your IRA custodian must purchase and hold them for your account, and, AFAIK, there are no custodians who will do so.
Woah. Didn't know that! That's really interesting to hear.

I guess I-Bonds already come with some tax benefits (deferral) so I probably wouldn't include them in an IRA anyways. :happy
Yes, years ago when I Bonds first came out, I specifically asked the Treasury folks about this, and they confirmed in writing that it was legally permissible. However, as you correctly pointed out, since I Bonds are already tax-deferred, that would similar to putting an already tax-deferred annuity in an IRA and we all agree that makes no sense. And, since I Bond interest is free from state and local taxation, you'd lose that benefit if you put it in an IRA, since most states tax IRA withdrawals. And finally, you can't use IRA funds for the tax-free educational expense benefit. So, bottom line, there are no custodians who will purchase them for your account that I know of, and even if they would, it simply doesn't make sense to do so.
Best Regards - Mel | | Semper Fi

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Re: New I-Bond rate?

Post by Default User BR » Wed Apr 24, 2013 5:39 pm

Mel Lindauer wrote:However, as you correctly pointed out, since I Bonds are already tax-deferred, that would similar to putting an already tax-deferred annuity in an IRA and we all agree that makes no sense.
Not exactly. I bonds reach final maturity at 30 years and the tax is due then. Depending on the particular circumstances, this could be at an inconvenient time. That being said, most people find better use for their tax-advantaged accounts.


Brian

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Re: New I-Bond rate?

Post by Mel Lindauer » Wed Apr 24, 2013 6:10 pm

Default User BR wrote:
Mel Lindauer wrote:However, as you correctly pointed out, since I Bonds are already tax-deferred, that would similar to putting an already tax-deferred annuity in an IRA and we all agree that makes no sense.
Not exactly. I bonds reach final maturity at 30 years and the tax is due then. Depending on the particular circumstances, this could be at an inconvenient time. That being said, most people find better use for their tax-advantaged accounts.


Brian
Depending on how old they are when the buy the EE Bonds, the IRA RMDs could come into play before the EE Bonds mature. Or they could mature for an early retiree at a time when they're in a low tax bracket. All depends on the timing of the purchases and the redemption (either 20 years when they double or 30 years when they reach final maturity). Lots of flexibility.
Best Regards - Mel | | Semper Fi

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Re: New I-Bond rate?

Post by relentless » Wed Apr 24, 2013 8:48 pm

Mel Lindauer wrote: ...
So, bottom line, there are no custodians who will purchase them for your account that I know of, and even if they would, it simply doesn't make sense to do so.
If the choice were TIPS vs I bonds in the IRA, wouldn't I bonds be preferable? 1) positive real (and even potentially nominal) return with deflationary periods; 2) ER=zero with zero transaction costs 3) no potential for loss of principal

I don't think the annuity analogy works well because of the wrap fees associated with them mean you are paying for something you don't need. With I bonds you are not paying anything extra and thus not harmed.

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Re: New I-Bond rate?

Post by Mel Lindauer » Wed Apr 24, 2013 9:12 pm

relentless wrote:
Mel Lindauer wrote: ...
So, bottom line, there are no custodians who will purchase them for your account that I know of, and even if they would, it simply doesn't make sense to do so.
If the choice were TIPS vs I bonds in the IRA, wouldn't I bonds be preferable? 1) positive real (and even potentially nominal) return with deflationary periods; 2) ER=zero with zero transaction costs 3) no potential for loss of principal

I don't think the annuity analogy works well because of the wrap fees associated with them mean you are paying for something you don't need. With I bonds you are not paying anything extra and thus not harmed.
Did not mean to imply that it had wrap fees similar to those associated with annuities. Rather, I was referring to putting an already tax-deferred product inside another tax-deferred product. Using I Bonds outside of one's IRA or 401k expands their tax-deferred space, whereas putting I Bonds inside would eat up some of that precious and limited tax deferred space.

And don't forget that you'll also lose the freedom from state and local taxation that comes with Treasury issues when you put I Bonds in your tax-deferred account since most states tax IRA and 401k withdrawals.
Best Regards - Mel | | Semper Fi

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Re: New I-Bond rate?

Post by JustinR » Mon Apr 29, 2013 6:02 am

Is it too late to hit the April 30 deadline?

What I mean is that does TreasuryDirect count your purchase at time of purchase, or when the funds are withdrawn from your bank?

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Re: New I-Bond rate?

Post by SSSS » Mon Apr 29, 2013 6:55 am

JustinR wrote:Is it too late to hit the April 30 deadline?

What I mean is that does TreasuryDirect count your purchase at time of purchase, or when the funds are withdrawn from your bank?
It will probably work if you do it today. It might even work tomorrow, but today would be safer.

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Re: New I-Bond rate?

Post by bigspender » Mon Apr 29, 2013 7:15 am

Looking at the i bond rate of 1.18%, it is actually better than a one year cd, so I think it is a reasonable choice if you want to park money somewhere for at least one year, and you have the put option of cashing it out after a year if the rate were to go to 0, then you wouldn't even have the 3 month penalty.

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Re: New I-Bond rate?

Post by Grt2bOutdoors » Mon Apr 29, 2013 7:23 am

SSSS wrote:
JustinR wrote:Is it too late to hit the April 30 deadline?

What I mean is that does TreasuryDirect count your purchase at time of purchase, or when the funds are withdrawn from your bank?
It will probably work if you do it today. It might even work tomorrow, but today would be safer.
Today or tonight before 12AM is the last time you can enter a purchase in to obtain April's issue month. The TD system is not an instantaneous updating system -I think it runs on a batch processing platform. If you enter the purchase in tomorrow morning, you will get May's issue date.
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Re: New I-Bond rate?

Post by BL » Mon Apr 29, 2013 7:47 am

Grt2bOutdoors wrote:
SSSS wrote:
JustinR wrote:Is it too late to hit the April 30 deadline?

What I mean is that does TreasuryDirect count your purchase at time of purchase, or when the funds are withdrawn from your bank?
It will probably work if you do it today. It might even work tomorrow, but today would be safer.
Today or tonight before 12AM is the last time you can enter a purchase in to obtain April's issue month. The TD system is not an instantaneous updating system -I think it runs on a batch processing platform. If you enter the purchase in tomorrow morning, you will get May's issue date.
and not get April's interest.

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Re: New I-Bond rate?

Post by Grt2bOutdoors » Mon Apr 29, 2013 7:50 am

BL wrote:
Grt2bOutdoors wrote:
SSSS wrote:
JustinR wrote:Is it too late to hit the April 30 deadline?

What I mean is that does TreasuryDirect count your purchase at time of purchase, or when the funds are withdrawn from your bank?
It will probably work if you do it today. It might even work tomorrow, but today would be safer.
Today or tonight before 12AM is the last time you can enter a purchase in to obtain April's issue month. The TD system is not an instantaneous updating system -I think it runs on a batch processing platform. If you enter the purchase in tomorrow morning, you will get May's issue date.
and not get April's interest.
Generally speaking, yes - you don't get the previous month's interest if you purchase the following month. The Treasury is not that generous.
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Re: New I-Bond rate?

Post by FoolStreet » Mon Apr 29, 2013 11:39 pm

Brian2d wrote:I guess my choices are
1. Invest now and earn 1.47% for the next year, 1.175% w/ withdrawal penalty
2. Invest between May and October and get 1.18% for half a year.
3. Wait until November and start at whatever the new rate is at that time. (I can still invest 10,000 in 2013 and 10,000 in 2014 if I choose this option,correct?)

Please let me know if any of this is incorrect.

Just to clarify... On Option #1, you still have to go through the 1.18 for 6 months after the 1.47 runs its course, right? So, it's worth mentioning, because, hypothetically, in 5 months, if rates go up, you might be bummed that you are about to start earning 1.18 for 6 mo, when new bonds are higher. Do I have this right?

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Re: New I-Bond rate?

Post by Mel Lindauer » Mon Apr 29, 2013 11:50 pm

FoolStreet wrote:
Brian2d wrote:I guess my choices are
1. Invest now and earn 1.47% for the next year, 1.175% w/ withdrawal penalty
2. Invest between May and October and get 1.18% for half a year.
3. Wait until November and start at whatever the new rate is at that time. (I can still invest 10,000 in 2013 and 10,000 in 2014 if I choose this option,correct?)

Please let me know if any of this is incorrect.

Just to clarify... On Option #1, you still have to go through the 1.18 for 6 months after the 1.47 runs its course, right? So, it's worth mentioning, because, hypothetically, in 5 months, if rates go up, you might be bummed that you are about to start earning 1.18 for 6 mo, when new bonds are higher. Do I have this right?
Nope, it's only partially correct (that you'll go through the 1.18% for the second six months). Regardless of when issued, each bond will go through a six-month period of the most recently announced inflation adjustment. So if it goes up, you'll get that increased rate the next time your rate resets (that's every six months from the issue date for the life of the bond), and if it goes down, you'll get that lower rate for the next six months. Bottom line: Every I Bond will go through every inflation adjustment cycle except, perhaps, the last one when they redeem their I Bonds.
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Re: New I-Bond rate?

Post by Dulocracy » Tue Apr 30, 2013 1:26 pm

Grt2bOutdoors wrote:
Today or tonight before 12AM is the last time you can enter a purchase in to obtain April's issue month. The TD system is not an instantaneous updating system -I think it runs on a batch processing platform. If you enter the purchase in tomorrow morning, you will get May's issue date.
Drat
BL wrote: and not get April's interest.
Double Drat
tipswatcher wrote:
I buy the limit each year. My current thinking is that I will hold these more-recent issues, with the zero base rate, until the base rate rises above zero. I really don't care if the I Bond is paying as much as a CD in one particular six-month period, unless bank CD rates skyrocketed.

The tricky thing is that if the base rate rises on I Bonds, I can only redeem $10,000 and reinvest $10,000 a year, so that limits how fast I could switch to the higher-rate I Bonds.

If bank CDs suddenly shoot up, I could cash a lot of I Bonds and buy the CDs, but then I pay taxes.

In either case, the cost of the taxes needs to be considered. What higher new interest rate will make it worth it to pay the taxes? Since I Bonds would pay the higher rate for 30 years, switching would be justified. But a bank CD? I'd need help figuring that one out.
Are you saying that you can only redeem $10,000 a year or that you can only redeem $10,000 without paying taxes on the amount? Sorry, for the limited reading of I-Bonds I have done about purchasing, I have not read much about redemption.

Followup question: If you can only redeem $10,000, is that redemption of the actual $10,000 or of the base $10,000 plus the proceeds off of the initial investment?
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

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Re: New I-Bond rate?

Post by Iorek » Tue Apr 30, 2013 1:53 pm

I think what tipswatcher meant to say is he/she can only "redeem and reinvest $10k a year" with the emphasis on reinvest. There is no limit on redemptions (and, AFAIK no limit on the amount eligible for tax free treatment, except the usual eligibility requirements), but the purchase limit effectively limits your ability to convert 0% fixed rate bonds to whatever fixed rate bond might be offered in the future.

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Re: New I-Bond rate?

Post by Dulocracy » Tue Apr 30, 2013 4:27 pm

Iorek wrote:I think what tipswatcher meant to say is he/she can only "redeem and reinvest $10k a year" with the emphasis on reinvest. There is no limit on redemptions (and, AFAIK no limit on the amount eligible for tax free treatment, except the usual eligibility requirements), but the purchase limit effectively limits your ability to convert 0% fixed rate bonds to whatever fixed rate bond might be offered in the future.
Thanks for the clarification! I was concerned that I missed something so major. Apparently, it was reader error.
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

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